Equity Indexed Annuities

• This type of investment is offered by insurance companies as a retirement investment vehicle. With an equity indexed annuity, you invest money regularly with the insurance company. Your annuity is tied to the performance of a financial index such as the Dow Jones Industrial Average. If the Dow Jones performs well, the annuity will also perform well. If the index performs poorly, the insurance company will guarantee your return at a minimum interest rate.
  
  

Maximum Rates and Participation Rates

• Since the insurance company guarantees you a minimum return on your investment regardless of how poorly the stock market performs, they have to make up this money on the other end of the spectrum. If the index performs particularly well, the insurance company generally has a maximum amount that you can earn. They then keep the extra that they earned from the index and save it. The annuity may also have a participation rate. This is the percentage of the gains that will be credited to your account. For example, if the participation rate is 90 percent and the index gains 10 percent on the year, 9 percent will be credited to your account.
  
  

Regular Payments

• One of the goals of the equity indexed annuity is to provide regular payments once you reach the age of retirement. Once you reach the age of 59 1/2, you can start taking payments from your equity-indexed annuity. The annuity can guarantee a payment for the rest of your life. Some annuities can even be set up to provide a payment for both the lives of you and your spouse. This investment gives you some peace of mind when planning for retirement.
  
  

Considerations

• Even though this is considered to be a fairly safe form of investment, it is still guaranteed by an insurance company. There are no government guarantees on these investments and insurance companies have gone out of business in the past. When investing in this type of annuity, you need to make sure that you are working with a reputable insurance company. You can check the financial ratings of an insurance company with rating agencies like Moody's and Fitch.